What is the Beveridge curve?

The Beveridge curve is an empirical relationship between the job vacancy rate (or job openings rate) and the unemployment rate. Named after British economist William Beveridge, it typically traces a downward-sloping curve: when vacancies are high, unemployment is low (tight labor market), and vice versa (slack labor market). The curve's position and shape provide important information about the efficiency of the labor market matching process.

During normal business cycles, the economy moves along the Beveridge curve. In expansions, the economy moves up and to the left (rising vacancies, falling unemployment). In recessions, it moves down and to the right (falling vacancies, rising unemployment). These cyclical movements represent the natural ebb and flow of labor demand and supply.

The more analytically interesting phenomenon is when the curve shifts. An outward shift (higher vacancy rate for a given unemployment rate) signals that the matching process has become less efficient. This can happen due to geographic mismatch (jobs are in different locations than workers), skills mismatch (available workers lack the skills employers need), or behavioral factors (reduced search intensity, increased reservation wages, or changes in worker preferences). The post-COVID labor market exhibited a significant outward shift, with vacancies remaining elevated even as unemployment remained low.

The Beveridge curve became central to the Fed's soft-landing narrative in 2022-2023. The idea was that the economy could travel down the steep portion of the curve: reducing the historically elevated vacancy-to-unemployment ratio primarily through lower openings rather than higher unemployment. If job openings could decline from 12 million toward 8 million while unemployment remained below 4%, inflation could moderate without recession. This path was dubbed "immaculate disinflation."

For macro analysts, monitoring the Beveridge curve provides context for interpreting both JOLTS data and unemployment data. If the curve is shifting inward (improving matching efficiency), it means the labor market is normalizing and the Fed's soft-landing path remains viable. If the curve shifts further outward, it suggests structural problems that monetary policy alone cannot solve, requiring different analytical frameworks and policy responses.